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Defining Competition

One of the hardest things for regulators to do is to define when a given telecom market is competitive. It’s an important question because, by definition, regulators are largely obligated by law to regulate monopoly or oligopoly providers in any market that is considered to be non-competitive. That’s the basic reason that regulators exist.

The telephone industry provides a good story of an industry that went from non-competitive to competitive. For a century most people in the country got telephone service from AT&T who had a monopoly franchise to provide service in defined geographic areas. Smaller telcos had the same monopoly power in smaller footprints. The FCC and state regulators heavily regulated the telephone industry to protect against monopoly abuses. The system worked, and we had low telephone rates and quality service.

Over time the monopolies broke. Some of this came from budding competitors like MCI. Eventually the government jumped into the fray. Judge Green forced the divestiture of AT&T and the Congress passed the Telecommunications Act of 1996 to finish the job – and at that point telephone service, at least in urban areas was assumed to be competitive.

We’ve seen the same thing happen with cable TV. Most markets in the country traditionally had one cable provider monopoly that was regulated under FCC rules and through local franchise agreements. Technology has allowed others to compete with the cable companies and there is a formal process for a cable company to ask the FCC to declare a given market to be competitive – the test generally being that a competitor has won some significant portion of the customers in that market.

AT&T just made a filing at the FCC that argued that the cellular market is competitive, and Verizon made a similar filing. The obvious reason for these filings is to get the FCC to relax or eliminate relating the cellular industry. A competitive industry doesn’t need the same level of regulator oversight and it’s presumed that the market will take care of monopoly or oligopoly pricing and protect consumers.

However, the smaller cellular carriers don’t see the same market. The Competitive Carriers Association (CCA) represents over 100 of the smaller cellular carriers in the country, including T-Mobile and Sprint. The group made a filing that argues that the cellular industry is not competitive. They argue that AT&T and Verizon have grown to control 70% of the market and that regulatory barriers and competitive practices of the two big providers have negatively impacted their ability to fairly compete.

It’s an intriguing read and is a good primer for many of the issues facing the industry. For example, the filing looks at the many different spectrum bands used by the cellular companies and shows how FCC spectrum policies award most of the good spectrum to the largest providers.

These filings were prompted by an FCC proceeding that is considering the creation of a new annual report on competition in the mobile broadband market. As cellular broadband grows in importance the FCC is interested in measuring progress of the industry and wants to get ahead of the curve before the introduction of 5G. AT&T and Verizon want to quash this effort by arguing that the industry is already competitive. Such a declaration by the FCC might not only eliminate this proposed new report, but it might eventually lead to a reduction in regulations of the cellular industry.

Like with other broadband technologies, urban America has more options than rural America. The FCC seems to have pinned its hopes on cellular wireless to fix huge coverage gap for rural broadband. This proposed report would gather data about cellular customers and product speeds – something the big companies don’t want to see published. Everybody in rural America knows that there are huge gaps in cellular coverage like there is with other broadband technologies. There are still huge areas with no 4G coverage and many places without even voice coverage.

I have not always been a fan of FCC annual reports because in recent years they have sometimes become political and the FCC has emphasized or de-emphasized facts to suit their preferred narrative. But we can’t even know the broadband situation with facts – so I hope this particular report moves forward.